market stress: The chief concern is that such funds will buckle during times of market stress and will be unable to deliver on a promise of liquidity, according to Market Watch. When you put completely illiquid, essentially privately placed debt, or even semi-liquid loans in meaningful size into a fund, it does create potential conditions like a cessation of the fund, said Steven Oh, head of global fixed income and credit at Pine Bridge Investments, in an interview with Market Watch. After a series of fund implosions in Europe this year, mutual funds and exchange-traded funds ETFs holding illiquid bonds and loans issued by highly leveraged corporations, rather than well-capitalized banks, could be the next source of financial-sector instability, and amplify market selloffs, analysts say. Market liquidity in open-end funds has come into focus recently, after funds holding sizable slugs of hard-to-trade and difficult-to-value securities were forced to close in the U.K. and Europe after a rush of outflows. More recently, H20 Asset Management, which held highly illiquid securities of companies associated with twice-bankrupt German financier Lars Windhorst, has seen billions of dollars leave its funds over these controversial links. Those include, Neil Woodford's flagship Equity Income fund and GAM's absolute return bond funds.
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Tagged under market stress, bonds loans topics.